Next time you talk over the phone with a colleague about that bombshell your employer's about to drop, you might make sure your spouse isn't eavesdropping.
According to an insider-trading complaint by the Securities and Exchange Commission announced Monday, the wives of Tyrone Hawk of Los Gatos and Ching Hwa Chen of San Jose found out the hard way.
After the SEC charged Hawk and Chen with using proprietary information gleaned from their wives to make stock trades resulting in hefty payouts, the two men agreed to pay even heftier sums to settle the SEC charges.
"Spouses and other family members may gain access to highly confidential information about public companies as part of their relationship of trust," said Jina L. Choi, director of the SEC's San Francisco Regional Office. "In those circumstances, family members have a duty to protect and safeguard that information, not to trade on it."
The SEC said that while such trust-violation cases do occur on a routine basis, they are not widespread, although one person familiar with the latest cases says tech-rich Silicon Valley may be a particularly fertile field of opportunity for this sort of financial hanky-panky.
"There's a lot of market-moving information around with all these high-tech companies making huge deals,'' said the person familiar with the case, who spoke on condition he not be identified. "Plus you have pretty sophisticated couples where you'll have one spouse in a high-level position with access to insider information and the other sophisticated enough to know how to use this information for financial gain. So this may be more common here than elsewhere."
According to the SEC, Hawk violated a duty of trust by trading after he overheard work calls made by his wife, a finance manager at Oracle, regarding her company's plan to acquire Acme Packet.
"Hawk also had a conversation with his wife in which she informed him that there was a blackout window for trading Oracle securities because it was in the process of acquiring another company," according to the SEC's release. "Hawk bought Acme Packet shares before the acquisition was announced in February 2013, and reaped approximately $150,000 by selling after the stock price rose 23 percent on the news."
Hawk, while neither admitting nor denying the allegations, agreed to pay more than $300,000 to settle the charges, said the SEC.
Neither Hawk nor his wife, who was not identified by name, could be reached for comment; Oracle declined to discuss the matter.
In the other case, the SEC alleged that Chen made money using confidential information in "mid-2012 that his wife's employer, Informatica, would miss its quarterly earnings target for the first time in 31 consecutive quarters," according to the release.
Chen allegedly overheard his wife talking on the phone during a vacation drive to Reno. The SEC said that his wife, who was not named, had "previously advised Chen not to trade in Informatica securities under any circumstances. However, after they returned from Reno, he established securities positions designed to make money if the stock price fell.''
It did, and Chen made a profit of nearly $140,000. While neither admitting nor denying the allegations, he agreed to pay about $280,000 to settle the case. An Informatica spokeswoman declined to comment. Neither Chen nor his wife could be reached for comment.
The person familiar with the matter said such cases are often launched when a participating party brags to a friend or colleague about making a killing in the stock market. This particular part of the SEC's insider-trading code covers "someone you're in a relationship of trust or confidence with,'' said the person, which can mean spouses, siblings or parent and child.
Asked whether the wives in these most recent cases were completely unaware of what was going on, the person familiar with the matter said investigators "don't know who did what, and you always look to see if someone was tipping off a spouse intentionally. But in these cases, the wives were not charged."
Contact Patrick May at 408-920-5689 or follow him at Twitter.com/patmaymerc.